Foreign Ownership of U.S. Treasury Securities

Foreign Ownership of U.S. Treasury Securities

Description

In 2004, it happened first time that the foreigners hold more than the fifty percent of the US public debt. The debt was owned by them in the form of the US treasury securities. The high demand of the US treasury securities is so high that it clearly shows the economy's stability of the US. The foreign borrowing is beneficial for the US because it is less costly to them as compared to the local borrowing. This case describes the market for the US treasury securities; it gives details about the participation of the market and the institution of the markets. The positive point for the US economy is that the treasury securities of the US are served as a hedging instrument and as a benchmark for others (Amihud & Mendelson, 2012).

Problems

The problems that are mentioned in the case include the following:

Marketable issuance of Treasury securities;

Federal deficit seems to be ever expanding.

Solutions

Marketable issuance of Treasury securities

Treasury securities are financial assets issued by the Treasury. They are the government's commitment to return at a specific time in the future, the amount borrowed from investors, with interest.

For Treasury bills are securities (bills) and Treasury bonds (or government). They are issued at a time when the government borrows money to finance the budget deficit, the excess of spending over revenue budget. Treasury securities are a part usually overwhelming based on the public debt.

Treasury bills are short-term financial instruments: they are issued for periods up to one year. The most popular are the 52-week bills, vouchers are issued for periods of less. Treasury bonds are issued for periods longer than one year. Most Popular is a 2-year bond and 5-year bonds are issued as 10-year and 20-year-old. Treasury bonds are issued not only in gold, but also in foreign markets in reserve currencies.

The assessment of the credibility of the state is higher, the economy is stable, the longer the period over which it can borrow and the lower the interest rates that must be paid from it, as the risk of failure to repay the debt or the loss of the value is lower. Theoretically, the national Treasury securities are the safest investments for investors, as the risk of bankruptcy of the state is negligible (Gurkaynak, Sack & Wright, 2007).

Treasury bills and bonds generally have large denominations except bonds specifically designed for small individual investors (retail bonds), so they acquire financial institutions or companies through these institutions. Emissions are usually by auction, then the securities are traded every day on the secondary market, their prices can be found in the press. There are also so-called private placement, which is addressed to some investors, but they usually put on the government bond markets.

Federal deficit seems to be ever expanding

U.S. Treasuries were able to stop their losing streak in today's trading at least for now. After the losses of the past days, the courses were the first to pick up again. Support delivered negative economic data from ...